Asset pricing: A tale of two days

Savor, Pavel G.; Wilson, Mungo Ivor

doi:10.1016/j.jfineco.2014.04.005

Cited by 292 publications

(135 citation statements)

References 35 publications

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“…Savor and Wilson (2013) show that 60% of the equity premium is earned around scheduled macroeconomic news announcements, whereas Lucca and Moench (2013) find that 80% of the equity premium since 1994 is earned in the 24 hours before the FOMC press releases. On the contrary, Campbell, Pflueger, and Viceira (2013) study the impact of monetary policy and macroeconomic shocks on nominal bond premia and the interlinkages with equity markets.…”

Section: D3 Monetary Policy Shocks and Portfolio Returnsmentioning

confidence: 97%

Nominal Rigidities and Asset Pricing

Weber

2014

SSRN Journal

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This paper examines the asset-pricing implications of nominal rigidities. I find that firms that adjust their product prices infrequently earn a cross-sectional return premium of more than 4% per year. Merging confidential product price data at the firm level with stock returns, I document that the premium for sticky-price firms is a robust feature of the data and is not driven by other firm and industry characteristics. The consumption-wealth ratio is a strong predictor of the return differential in the time series, and differential exposure to systematic risk fully explains the premium in the cross section. The sticky-price portfolio has a conditional market β of 1.3, which is 0.4 higher than the β of the flexible-price portfolio. The frequency of price adjustment is therefore a strong determinant of the cross section of stock returns. To rationalize these facts, I develop a multi-sector production-based asset-pricing model with sectors differing in their frequency of price adjustment.JEL classification: E12, E44, E52, G12

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Section: D3 Monetary Policy Shocks and Portfolio Returnsmentioning

confidence: 97%

Nominal Rigidities and Asset Pricing

Weber

2014

SSRN Journal

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“…This paper also adds novel results to a growing literature on the noteworthy behavior of equity prices around FOMC announcements. Savor and Wilson (2014), for example, find that the unconditional CAPM prices a number of test assets well on days of macroeconomic announcements including FOMC announcements, but not on other days. My results are distinct from theirs in at least two ways.…”

Section: Related Literaturementioning

confidence: 99%

“…Savor and Wilson (2014), for example, find that the CAPM prices a number of test assets well, but only on days of macroeconomic announcements including those from the FOMC. My results are distinct from theirs in at least two ways.…”

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confidence: 99%

Monetary Policy Surprises, Investment Opportunities, and Asset Prices

Detzel

2015

SSRN Journal

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policy shocks increase expected excess market returns. All else equal, standard intertemporal asset pricing theory predicts that these shocks should therefore earn a positive risk premium as long-lived investors will pay to hedge against decreases in expected returns. Consistent with this prediction, I find that a mimicking portfolio for these shocks earns positive average excess returns, and along with the market factor prices portfolios formed on size, book-tomarket, and momentum with an R 2 of 86%. The policy shock portfolio also eliminates the alphas of value and momentum factors.

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“…Moreover, Bernanke and Kuttner (2005) attribute a large portion of the positive reaction of markets, due to expansionary monetary policy decisions, to the lessening in risk premiums. Recently, Savor and Wilson (2014) find evidence that the CAPM performs differently on FOMC announcement days (together with employment and inflation news) than non-announcement days. Specifically, beta is positively related to average returns on announcement days but zero or even negative on non-announcement days.…”

Section: Literature Reviewmentioning

confidence: 99%

When No News is Good News The Decrease in Investor Fear after the FOMC Announcement

2014

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This paper examines the impact of FOMC announcements on the intraday behavior of the VIX and VIX futures. We find that the VIX and the VIX futures start to decline immediately after the FOMC announcement, and this decline persists for about 45 minutes after the announcement. The VIX declines by about 3% on announcement days, whereas the nearest term VIX futures contract declines by about 1.40% around the announcement. We further note that the decline in the VIX and VIX futures is inversely related to the increase in realized volatility around the FOMC announcement. We show that on days with an FOMC announcement, a trading strategy, going short on the VIX futures at the start of the day and closing the position at the end of the same day, yields a return of about 10% p.a.

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Asset pricing: A tale of two days

Cited by 292 publications

References 35 publications

Nominal Rigidities and Asset Pricing

Nominal Rigidities and Asset Pricing

Monetary Policy Surprises, Investment Opportunities, and Asset Prices

When No News is Good News The Decrease in Investor Fear after the FOMC Announcement

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